Don't overlook disability insurance

Say "insurance" to most people and auto, health, home, and life are the variants that spring to mind. But what if an illness or accident were to deprive you of your income? Even a temporary setback could create havoc with your affairs. Statistics show that your chances of being disabled for three months or longer during your working years are 3.5 times greater than your chances of dying during the same period.

Yet people with financial savvy often overlook disability insurance. Perhaps they feel amply covered through their job benefits. However, such coverage is woefully inadequate. Most individuals should consider disability insurance in their financial planning. To get the right coverage for you, take the following steps:

Scrutinize key policy terms. First, ask how "disability" is defined. Some policies use "any occupation" to determine if you are fit for work following an illness or accident. A better definition is "own occupation," whereby you receive benefits when you cannot perform the job you held at the time you became disabled.

Check the benefit period. Ideally, your policy should cover your disability until you will be covered by Medicare and Social Security.

Determine how much coverage you need. Tally the after-tax income you'll have from all sources during a period of disability, and subtract this sum from your minimum needs.

Decide what you can afford. Disability insurance is not inexpensive. Plan to forgo riders and options that boost premiums significantly. If your budget won't support the ideal benefit payment, consider lengthening the elimination period. (Check to see if your accumulated sick leave, savings, etc., will carry you until the benefits kick in.)